Grain markets delicately poised

World grain markets are delicately poised and any serious weather problems this year could see prices return to 2007 levels, Klaus Schumacher of trader Toepfer International told this week’s NFU conference.

Despite a slight recovery this season, world cereal stocks were still historically low at just 19% of estimated usage, he said. “The message is clear: We need another year of good world grain production.”

But the planted area was already down and, with farmers cutting back on expensive inputs, yields would be down, too. “We are vulnerable to weather-related impacts. We need stocks to increase to keep up with demand.”

Dr Schumacher also stressed the relationship between the price of oil and the price of cereals, especially given the amount of US corn going to bioethanol production – about 90m tonnes or a third of the crop in 2009.

“There has always been some link,” he said, pointing to the impact of oil prices on things like fertiliser and transport. “But this link is getting stronger and has a big impact on the way we think about pricing in future.”

Recent rises in the price of oil were underpinning the price of soft commodities, he added.

Dr Schumacher also pointed to the effect that export embargoes had had in 2007 and the first half of 2008, which had exacerbated the rise in food prices. He warned that this could happen again as certain countries responded to the recession by becoming more protectionist, which would increase price volatility.

Looking ahead, Dr Schumacher said productivity gains would be essential to meet the growing demand for food triggered by population growth, changing diets and increased incomes. This would mean bringing more land back into production in places like Russia, Ukraine, Kazakstan, sub-Saharan Africa and South America.